The amendment virtually states that all investments made earlier than 1 April 2017 will now not besusceptible to be taxed in India. photograph: Ramesh Pathania/Mint
New Delhi: India and Mauritius agreed to amend their extra than decade old tax treaty in Port Louis on Wednesday after severa rounds of talks over the previous couple of years. A have a look at themodifications in the double taxation avoidance settlement between each the countries and their impacton buyers.
What are the key changes in the India-Mauritius tax treaty?
India gets the proper to tax capital profits bobbing up from transfer of shares of Indian residentcorporations. inside the older model of the tax treaty, most effective Mauritius had the right to tax capitalgains through businesses investing in India from that us of a. however, tax on capital profits changed into almost 0 in Mauritius, making it an attractive vacation spot for investors trying to put money intoIndia.
The amended tax treaty additionally has a hassle of gain clause that requires agencies based totally in Mauritius to spend at the least Rs.27 lakh inside the preceding twelve months to benefit from the tax treaty. there was no such clause in advance.
Will it have any retroactive impact?
The amendment definitely states that each one investments made before 1 April 2017 will now not bevulnerable to be taxed in India. because of this even though traders who’ve delivered shares in Indiancompanies earlier than 1 April 2017 determine to promote these stocks after this date, the capital profitsaccruing to them will now not be taxed in India.
For investments made after 1 April 2017, the new version of the treaty provides for a tax concession for 2years within the transition segment. traders will ought to pay handiest 50% of the applicable capitalprofits tax till 2018-19.
Does it impact India’s treaties with different countries?
The change to the India Mauritius tax treaty additionally automatically applies to the India-Singapore taxsettlement.
that is due to the fact article 6 of the treaty with Singapore states that “articles 1, 2, three and five of this Protocol shall continue to be in force so long as any convention or settlement for the Avoidance of Double Taxation between the authorities of the Republic of India and the authorities of Mauritius providesthat any gains from the alienation of shares in any company which is a resident of a Contracting nation will be taxable simplest in the Contracting state in which the alienator is a resident”.
in reality placed, as soon as India gets the right to tax capital gains in its treaty with Mauritius, it’ll also get a similar proper beneath the India-Singapore treaty.
The finance ministry is predicted to pop out with a explanation on the effect at the India-Singapore treaty.
Will it impact all buyers coming in from the Mauritius and Singapore route?
it will impact non-public equity and task capital buyers who normally put money into unlisted securities as they will now be prone to pay capital profits tax in India. foreign portfolio traders (FPIs) who put money into indexed securities but go out before one year may even get hit as they’ll ought to pay short–termcapital profits tax in India.
only those investors who invest in indexed securities and continue to be invested for greater than three hundred and sixty five days will not have a tax burden in India. that is because long–term capital gainstax is 0 per cent in those cases.
around 50% of foreign direct investment into India comes from Mauritius and Singapore, as consistent with facts available with the authorities. also, as in keeping with information to be had with nationalSecurities Depository Ltd, almost 31% of the overall assets beneath custody of FPIs is with buyers from Mauritius and Singapore.